We currently have an oil and gas lease in place on our 19 acres. We were set to close this week with a buyer, who was aware of the lease, but he suddenly backed out. Reason being, he stated that he was not aware that the lease granted the oil company right to use the surface if they so chose. Obviously, we are disappointed but we're afraid that this lease might encumber any sale in the future and make it difficult to do anything with the land...at least for several years.
Is this a common issue or is it just buyer specific? Do we have any options at this point or just hope that a buyer comes along who is okay with the lease,etc.? Any advice is greatly appreciated. We don't know how to proceed in selling our land. We would like to reserve mineral rights but understand we may have to convey all or part in order to ease any buyer's concerns. Thanks!
chad:
This situation whereas the oil operator has use of the surface is and has been common practice for years. Many land sales have occurred over the years whereas oil leases on the property has been a factor. Do you have a written agreement between yourself and the oil company? If so, you might explain the details of this agreement and a brief history of the operators activities over the past few years.
We do have an executed lease with an oil company...three year lease, and it can extend depending on certain occurrences. We signed the lease over the summer. It's tough for us to know how to market the land. We want to be upfront and tell every buyer there is a lease on the land so that both sides don't waste their time if it's not going to work.
Our best case scenario is give a buyer a good deal on the purchase of the land and we reserve all mineral rights while the lease is in play. However, that's probably not going to be good enough for most buyers if they see that an oil company has the option to use the surface in the future. We would be okay with offering a good/discounted price for the purchase and splitting the mineral rights with a buyer but once again, need the right buyer to come along.
Ha, no :-) We're in Louisiana.
Rick Howell said:
chad:
There is also a possibility that no well will be drilled on the property. Again, the surface owner, whomever it is, can enter into an agreement as to the use of surface areas. This lease should have have a minimum impact on the sale of the surface rights. In reality, all property sold, even property inside city limits, is subject to drilling activity. Of course, rules are in place as to the proximity a well or equipment location from a business or residence.
Is there a producing well on the property, or has the property been included in a pooling unit? If not, and the Lease expires, THEN would be a better time to sell the property. You wouldn't have to explain the Lease, other than to say it was expired, and you would have a better chance of keeping all your minerals.
You could keep trying, there are a lot of people out there that don't pay attention. Pete has an excellent idea that if you can wait for the lease to expire, the severance of the minerals might not be such a large issue, and you can keep trying to sell the surface in the interim.
If I were the buyer I would look at how attractive your 19 acres would be as a drillsite. Did you grant the use of water, electric, pipeline easements and so forth in your lease? If I were an operator free water and a pipeline easement would make it a more attractive place to drill, to me.
No well currently. Also, not part of any unit yet. We would prefer to sell soon and just hoping we didn’t make a mistake signing a lease right now.
It shouldn’t be a very attractive place to drill for an operator so I might just have to explain that any potential buyer.
This is Louisiana. You may retain your minerals for no more than 10 years, without an interruption of prescription. So in other words, if the operator does not drill or pool you land in the unit, you will lose your minerals after 10 years. I would not be too quick to sell. Most of the drilling in the area has been put on hold and may not be drilled in the 10 year window.
Chad,
Thanks for the articulate posting. I hope all mineral owners anxious to get a little bonus money will read you post and understand how signing a lease just for the cash bonus can hurt them deeply in the long run. Preach, preach preach.
As to a sale, consider how much and for what reason you want to reserve the minerals. This examination of your needs is much more important in La. than any other state where I work. The value of severed minerals in La. can decrease to zero in a geologic heartbeat. On the other hand, minerals with high long-term potential should add to the value of the property if explained to a buyer with the geologic potential facts; lease or no lease.
Personally, I suspect that your buyer's lawyer has given the buyer an excuse to renegotiate the price with you. I deal with this everyday. Consider countering with the the added value of the mineral rights and, if acceptable in La, just retain a share of the upside. Pride of ownership of severed minerals in La. is often a hollow and expensive pride to maintain but that is the essence of the law.
The tough part is we really weren't motivated by the bonus...it was minimal. I also agree the buyer's attorney is playing a large role here. On a side note, I just spoke with the oil company and they are willing to provide a "designated drill spot" for if they ever decide to use the land. I feel this could only help with buyers who may have concerns. Do oil companies generally do this? Does it mean anything as far as the likelihood they will drill on Land?
Gary L. Hutchinson said:
Chad,
Thanks for the articulate posting. I hope all mineral owners anxious to get a little bonus money will read you post and understand how signing a lease just for the cash bonus can hurt them deeply in the long run. Preach, preach preach.
As to a sale, consider how much and for what reason you want to reserve the minerals. This examination of your needs is much more important in La. than any other state where I work. The value of severed minerals in La. can decrease to zero in a geologic heartbeat. On the other hand, minerals with high long-term potential should add to the value of the property if explained to a buyer with the geologic potential facts; lease or no lease.
Personally, I suspect that your buyer's lawyer has given the buyer an excuse to renegotiate the price with you. I deal with this everyday. Consider countering with the the added value of the mineral rights and, if acceptable in La, just retain a share of the upside. Pride of ownership of severed minerals in La. is often a hollow and expensive pride to maintain but that is the essence of the law.
Gary L Hutchinson
Minerals Management
You may ask the lessee for a "non-drilling lease" modification which is what you should have done when you listed your property for sale. With only 19 acres they may trade for an extension of the lease. They may not do it for free but in exchange for something they want. (more time) A drilling permit approval will require a deal with the surface owner anyway. Check the regs and tell the buyer they have some control over location.
Don't read anything into the agreement to set a location. Most leases have some location restrictions to accommodate the mineral and surface owner but more depends on local regulations and zoning. Keep in mind that the lessee may have changed. If your lease isn't permitted, included in a unit, owned by a major, or by a local operator, chances are it won't get drilled. Gary Hutchinson
chad mayo said:
The tough part is we really weren't motivated by the bonus...it was minimal. I also agree the buyer's attorney is playing a large role here. On a side note, I just spoke with the oil company and they are willing to provide a "designated drill spot" for if they ever decide to use the land. I feel this could only help with buyers who may have concerns. Do oil companies generally do this? Does it mean anything as far as the likelihood they will drill on Land?
Gary L. Hutchinson said:
Chad,
Thanks for the articulate posting. I hope all mineral owners anxious to get a little bonus money will read you post and understand how signing a lease just for the cash bonus can hurt them deeply in the long run. Preach, preach preach.
As to a sale, consider how much and for what reason you want to reserve the minerals. This examination of your needs is much more important in La. than any other state where I work. The value of severed minerals in La. can decrease to zero in a geologic heartbeat. On the other hand, minerals with high long-term potential should add to the value of the property if explained to a buyer with the geologic potential facts; lease or no lease.
Personally, I suspect that your buyer's lawyer has given the buyer an excuse to renegotiate the price with you. I deal with this everyday. Consider countering with the the added value of the mineral rights and, if acceptable in La, just retain a share of the upside. Pride of ownership of severed minerals in La. is often a hollow and expensive pride to maintain but that is the essence of the law.
Good idea.
Gary L. Hutchinson said:
You may ask the lessee for a "non-drilling lease" modification which is what you should have done when you listed your property for sale. With only 19 acres they may trade for an extension of the lease. They may not do it for free but in exchange for something they want. (more time) A drilling permit approval will require a deal with the surface owner anyway. Check the regs and tell the buyer they have some control over location.
Don't read anything into the agreement to set a location. Most leases have some location restrictions to accommodate the mineral and surface owner but more depends on local regulations and zoning. Keep in mind that the lessee may have changed. If your lease isn't permitted, included in a unit, owned by a major, or by a local operator, chances are it won't get drilled. Gary Hutchinson
chad mayo said:
The tough part is we really weren't motivated by the bonus...it was minimal. I also agree the buyer's attorney is playing a large role here. On a side note, I just spoke with the oil company and they are willing to provide a "designated drill spot" for if they ever decide to use the land. I feel this could only help with buyers who may have concerns. Do oil companies generally do this? Does it mean anything as far as the likelihood they will drill on Land?
Gary L. Hutchinson said:
Chad,
Thanks for the articulate posting. I hope all mineral owners anxious to get a little bonus money will read you post and understand how signing a lease just for the cash bonus can hurt them deeply in the long run. Preach, preach preach.
As to a sale, consider how much and for what reason you want to reserve the minerals. This examination of your needs is much more important in La. than any other state where I work. The value of severed minerals in La. can decrease to zero in a geologic heartbeat. On the other hand, minerals with high long-term potential should add to the value of the property if explained to a buyer with the geologic potential facts; lease or no lease.
Personally, I suspect that your buyer's lawyer has given the buyer an excuse to renegotiate the price with you. I deal with this everyday. Consider countering with the the added value of the mineral rights and, if acceptable in La, just retain a share of the upside. Pride of ownership of severed minerals in La. is often a hollow and expensive pride to maintain but that is the essence of the law.
Gary L Hutchinson
Minerals Management
I have never worked in-house so I don't know how often an Operator will make a "designated drill-site location," but even if they did so, unless it's in a formal agreement, how could somebody as a surface owner necessarily take it as Gospel? I sure would not.
Certainly not as Gospel, but I believe it could only help explain the situation and ease any concerns a potential buyer may have.
Pete Wrench said:
I have never worked in-house so I don't know how often an Operator will make a "designated drill-site location," but even if they did so, unless it's in a formal agreement, how could somebody as a surface owner necessarily take it as Gospel? I sure would not.